Wage restraints continue in 1985 major contracts For the fourth
consecutive year, major collective bargaining agreements in 1985
provided record low or near-record low wage adjustments, as measured by
the Bureau of Labor Statistics' 18-year-old series on private
industry agreements covering 1,000 workers or more. Pressures to
restrain labor costs dominated major negotiations during the year, and
are evident in the size of settlements. First-year wage adjustments
(the net effect of decisions to increase, decrease, or not change wages)
averaged 2.3 percent, the lowest since the series began in 1968. Wage
adjustments over the life of the contracts averaged 2.7 percent
annually, next to the lowest. Wage adjustments actually put into effect
during 1985 averaged 3.3 percent, also a historic low.

For almost all the settlements in 1985, the year marked at least
the second or third round of bargaining since the average size of wage
adjustments in settlements started to fall during 1981. (See chart 1.)
The last time the parties to 1985 settlements bargained, usually in 1982
or 1983, they agreed to average specified wage adjustments of 3.9
percent in the first contract year and 3.7 percent annually over the
contract life.

When cost-of-living adjustments (COLA) are added to the specified
adjustments, predecessor contracts to the 1985 settlements upped wages
an average of 4.4 percent annually over their contract life. Total wage
adjustments implemented under expired contracts have declined steadily
since 1983 because of moderation in the size of specified wage changes
and because of lower COLA's resulting from the deceleration in the
rate of price increases. As shown in the following tabulation, the
predecessor contracts with COLA clauses provided smaller wage
adjustments over their life than those without.

Prior to 1983, expiring contracts with cost-of-living adjustment
clauses provided smaller specified wage adjustments than those without,
but COLA's more than made up the difference. The moderate
increases in the Consumer Price Index (CPI) during the life of contracts
that expired starting in 1983 kept down the size of COLA's, so that
they were no longer large enough to compensate for the smaller specified
adjustment in contracts with COLA's, compared to those without.

Cost-curbing efforts

In 1985, bargainers did not face inflation-related problems. The
3.8-percent increase in the Consumer Price Index for Urban Wage Earners
and the 6.8-percent unemployment rate reached in December 1985 reflected
improved economic conditions. However, bargainers did encounter many of
the industry-specific problems faced by negotiators earlier in the
decade. Increased competition from abroad and from domestic nonunion companies continued to erode markets for many unionized firms, and the
ensuing declines in job opportunities were a major concern of union
leaders. Efforts to contain labor costs and make firms more
competitive, and to save jobs figured prominently in negotiations. The
results of some of these efforts show up in contracts that are
"back-loaded," call for lump-sum payments rather than wage
increases, and adopt "two-tiered" compensation systems. Other
contracts simply limit the size of wage adjustments.

Back-loaded contracts. Contracts which call for lower specified
wage adjustments in the first year than in subsequent years (back-loaded
contracts) covered about 38 percent of the 2.2 million workers under
1985 settlements. Prior to 1983, almost all workers under multiyear
settlements had their largest increases in the first year.

Back-loaded settlements provided wage adjustments averaging 0.6
percent in the first year and 2.6 percent annually over the contract
life. Of the 830,000 workers covered by back-loaded contracts, 474,000
received no wage increase in the first contract year, 315,000 received
smaller increases in the first than following years, and the remainder
sustained initial wage cuts but no additional decreases over the life of
their multiyear agreements. Although found in a variety of industries,
back-loaded contracts were concentrated in apparel manufacturing,
electrical machinery manufacturing, and construction.

About 36 percent of the workers under 1985 contracts were covered
by "front-loaded" settlements (larger wage adjustments in the
first contract year than in subsequent years), with adjustments
averaging 4.2 percent in the first year and 3.3 percent over the life of
the contract. The remaining 26 percent of the workers were covered by
either 1-year agreements or multiyear contracts which provided equal
wage adjustments each year.

Lump-sum payments. Almost one-third of the 2.2 million workers
under 1985 settlements will receive lump-sum payments instead of the
traditional increases in wage rates. (Lump sums are excluded from wage
and compensation measures in this series.) Lump-sum payments limit
labor costs because they are excluded when calculating the level of
certain benefits, such as pensions, and do not raise the wage rate base
from which future contracts must be negotiated.

On average, settlements with lump-sum payments gave smaller wage
adjustments than those without. Adjustments averaged 1.2 percent in the
first year and 1.8 percent annually over the contract life for
settlements with lump sums; corresponding averages for settlements
without lump sums were 2.8 and 3.2 percent. The majority of workers
receiving lump-sum payments were in the apparel, electrical machinery
manufacturing, and transportation industries, and more than half
(363,000) of them were covered by back-loaded contracts.

Two-tiered structures. In another approach to long-term cost
savings, 1985 settlements covering about 700,000 current employees
provided for "two-tiered" wage systems. While not altering
wages or benefits for workers already employed, two-tiered systems lower
starting rates and progression rates for new hires. These dual wage
structures might be temporary or permanent. Under the temporary
systems, new employees start at a lower rate than incumbents, but the
wage rates for new and current employees eventually merge. Under the
permanent system, new employees never reach the pay levels of incumbent
employees. In some cases, no cost savings may be realized from the
two-tier system because no new workers may be hired during the life of
the contract.

COLA clauses

Cost-of-living adjustment clauses were dropped in settlements
covering 471,000 workers, or about 40 percent of those settling in 1985
who had such coverage in their previous agreements. Contracts covering
about 173,000 workers in the trucking industry and 101,000 in apparel
manufacturing were among those dropping COLA coverage.

The drop reflects the declining importance of COLA's as a
potential source of wage increases. Many contracts retaining
COLA's modified the provision to delay or reduce payments by
introducing or lowering caps or maximum amounts, or by diverting payments to cover increased benefit costs. Some contracts temporarily
suspended payments.

Wage increases from COLA's during the preceding contracts were
comparatively small because the CPI increased 4 percent or less
annually. This led to increasing interest in negotiating specified wage
changes instead of COLA clauses. In 1985, COLA clauses were introduced
for only 41,000 workers. As a result of these developments and
employment declines in industries with contracts that retained COLA
clauses, the proportion of workers under major contracts with COLA
clauses fell to 49 percent by the end of 1985, from 57 percent at the
end of 1984.

Cost-of-living adjustment clauses covered 33 percent of the workers
under 1985 settlements. Wage adjustments stemming from COLA clauses are
not included in settlement data because COLA's depend on future
changes in the CPI--changes that are not known at the time of
settlement. However, guaranteed COLA amounts (those specified when the
agreement is reached and scheduled to be implemented later) are included
in settlement calculations because they are not tied to subsequent price
movements.

Settlements with COLA clauses provided specified wage adjustments
of 1.7 percent in the first contract year, and 2.5 percent annually over
the contract life, compared with 2.7 and 2.8 percent in settlements
without such clauses. This follows the historic pattern, in which
settlements with COLA clauses have provided lower specified wage
adjustments than those without, because the COLA provisions are expected
to yield additional increases. (See chart 2.)

Distribution of wage adjustments

Of the almost 2.2 million workers under 1985 settlements, about 1.4
million had first-year wage increases averaging 4.2 percent, 0.7 million
had no wage change, and the balance had decreases averaging 8.8 percent.
(See table 1.) Subsequent wage increases for almost half a million of
the workers with no change in the first year will give them a net gain
over the contract term. Thus, by the end of their contract, 85 percent
of the workers will have received a specified wage increase averaging
3.5 percent annually. None of those with wage decreases in the first
contract year will recoup the lost wages in subsequent contract years
and, thus, will have decreases averaging 6.6 percent per year over the
life of the contracts. (See table 2.)

Contracts with net wage increases were negotiated in a variety of
industries including trucking, public utilities, apparel manufacturing,
airlines, service, and retail trade. Wage freezes occurred primarily in
the construction industry but appeared in other industries as well,
including food stores, transportation equipment, and electrical
products. About one-third of the workers who sustained wage decreases
were in construction; the remainder were in a variety of industries.

Compensation adjustments

The Bureau measures compensation (wages and employee benefits
costs) changes in settlements covering at least 5,000 workers. These
contracts cover about two-thirds of all workers under major settlements
in 1985. Compensation adjustments under these settlements averaged 2.6
percent in the first contract year and 2.7 percent annually over the
life of the contract. (See table 3.) Compensation increases were
received by 9 of 10 workers under these settlements, and averaged 3.2
percent in both the first year and annually over the life of the
contract. The remainder of these workers received either no change or a
decrease in compensation during both the first year and over the life of
the contract.

Major negotiations, by industry

Although settlements were concluded in a variety of industries in
the first quarter, bargaining activity was light until spring, when the
pace quickened. In some industries, talks continued from the second
quarter into the third. For example, 91 percent of the construction
workers under 1985 settlements had their contracts negotiated during the
second and third quarters; negotiations in apparel primarily spanned May
through September; and contract talks in wholesale and retail trade were
also concentrated in this period. The following discussion summarizes
these and other major negotiations: trucking and rubber industries in
the second quarter, electrical products manufacturing in the third, and
automobile manufacturing and railroads in the fourth.

Construction. As in recent years, high unemployment and nonunion
competition in construction have pressured bargainers to restrain wage
demands and reduce employer costs to make union firms more competitive
with their nonunion rivals. Although some contracts changed work rules,
efforts to control costs concentrated on moderating wage rates: lower
wage rates for new hires; lower rates for new projects than for work
already in progress; and delaying wage increases to the second or third
year of the contract. Thirty-one percent of the construction workers
covered by 1985 agreements will have wage cuts or freezes over the life
of their agreements.

These efforts to contain or reduce construction labor costs
dampened the overall size of wage adjustments for all industries.
Construction settlements, which covered 330,000 workers, provided
average wage adjustments of 1.5 percent in the first year and 2.1
percent annually over the life of the agreements, compared with
corresponding averages of 2.5 percent and 2.9 percent in other
industries.

Wholesale and retail trade. With negotiations concentrated in the
second and third quarters, settlements covering 234,000 workers in
wholesale and retail trade were concluded in 1985. These contracts
provided average adjustments of 2.8 percent the first year and 2.6
percent annually over the life of the agreements. Almost one-third of
the workers under these contracts will receive lump-sum payments.
Efforts to restrain labor costs and improve the competitive position of
the firms have also led to the expansion of the already widespread use
of part-time employees. This practice lowers costs, by reducing the
need for overtime work and because part-timers may be paid less than
full-timers and be eligible for fewer benefits.

Trucking. Beset with problems generated by deregulation and the
recession in the early 1980's, Trucking Management Inc. (TMI), the
major employer negotiator in the trucking industry, sustained a sharp
drop in the number of member companies for which it bargains. Since the
1982 negotiation of the prior agreement, many companies merged, failed,
or laid off workers resulting in a smaller number of firms and workers
in the industry. The expired contract between TMI and the Teamsters provided no specified wage increase, and only one COLA increase on the
effective date of the contract. All other COLA monies had been diverted to pay for increases in the cost of benefits. The May settlement
covering 150,000 truckers and helpers, substituted the COLA clause based
on changes in the CPI for a "guaranteed COLA" (an amount
specified in the contract independent of the CPI). The contract also
called for changes in work rules, in an attempt to make unionized firms
more competitive.

Rubber. Closely linked to automobile manufacturing, which is still
struggling with foreign competition, the rubber tire manufacturers had
revitalized many of their plants since the prior round of talks.
Negotiations were held under a backdrop of higher capacity utilization and fewer layoffs than in the early 1980's.

The 3-year agreement between the United Rubber Workers and B. F.
Goodrich set the pattern for settlements with the three other major
rubber manufacturers: Goodyear, Firestone Tire and Rubber Co., and
Uniroyal. These contracts, covering 36,000 workers, raised wages 43
cents an hour over 3 years and maintained the quarterly cost-of-living
clause providing a penny for every 0.26-point rise in the CPI-W.

Apparel. Over the past several years, the apparel industry has
been plagued with high unemployment as the industry faces stiff
competition from foreign imports. Contracts covering 285,000 workers
represented by the International Ladies' Garment Workers Union
(ILGWU) and the Amalgamated Clothing and Textile Workers Union (ACTWU)
were reached between May and October and featured some cost-saving
features.

The agreements covering 125,000 workers negotiated by the ILGWU and
various employer groups were back-loaded. Wages were frozen the first
year. However, increases of 6 percent and 5 percent, respectively, are
scheduled for the second and third years. The COLA clause, which had
not generated any increases under the last two contracts, was unchanged;
it provides for a 2-percent wage increase if the CPI-W rises 8.5 percent
in an 18-month period. The contract also improved some health and
welfare benefits.

The September agreement between the Cotton Garment Manufacturers
and the National Trouser Association covering 101,000 workers
represented by the ACTWU dropped their COLA clause which had not yielded
any payment since 1981. The accord also provided a $500 lump-sum
payment upon settlement and lump-sum payments of 6.5 percent of gross
pay in 1986 and in 1987. A general 25-cent wage increase is scheduled
for September 1987. Benefit increases include an 11th paid
holiday--Martin Luther King's birthday--and increases in pension,
sickness and accident, and death benefits.

Electrical products. Declining employment in the industry raised
concern over job preservation in the contract talks in the electrical
products manufacturing industry. The resulting settlements, covering
106,000 General Electric and Westinghouse workers negotiated by the
Coordinated Bargaining Committee (a coalition of 13 unions) introduced
lump-sum payments and a temporary two-tiered wage structure. As usual,
the settlement with General Electric (for 80,000 workers) set the
pattern for the Westinghouse accord. It provided for a lump-sum payment
in the first year equal to 3 percent of the pay rate times 2,080 hours,
and general wage increases of 3 percent in the second and third years.
In addition, new employees will have to wait 8 months longer to reach
the maximum pay rates for their job. The cost-of-living clause was
continued providing 1 cent for each 0.175-percent change in the CPI-W,
increasing to 1 cent for each 0.15-percent change in the third year.

Automobile manufacturing. In late October, an agreement covering
70,000 workers was reached between the Auto Workers and Chrysler Corp.
providing parity with wage and benefit provisions in the General Motors
Corp. and Ford Motor Co. contracts. The financial position of Chrysler
had improved substantially since the United Auto Workers cost-curbing
contracts negotiated in 1979, 1980, and 1981. The December 1982
contract had reduced the disparity between Chrysler's wages and
benefits and those at Ford and General Motors, but differences remained.
The 1985 Chrysler settlement eliminated these differences; it provided
for a 2.25-percent wage increase in the first year; an October 1986
lump-sum payment equal to 2.25 percent of each employee's earnings
during the preceding 12 months; and a 3-percent pay increase in October
1987. The cost-of-living clause was modified to match that covering GM
and Ford workers--a 1-cent wage change for each 0.26-point movement in
CPI-W quarterly, subject to a 1- to 2-cent diversion from each
adjustment to help offset increased benefit costs.

Railroads. After negotiating for 2-1/2 years, the United
Transportation Union and the National Railway Labor Conference reached a
settlement in December covering 82,000 operating engineers. The
agreement followed the recommendations of a presidentially appointed
emergency board. It provided that the 6,000 firemen and 2,000 hostlers
(railyard train operators) would be phased out through attrition. Other
terms were a six-stage wage increase totaling about 10.5 percent over
the term of the agreement (an average of about $1.37 an hour); a $565
lump-sum payment in lieu of making the initial wage increase retroactive to July 1984; and a modified COLA clause which provides that COLA's
are to be paid only to the extent that they exceed the specified wage
increases.

Wage adjustments effective in 1985

Wage adjustments put into effect in 1985 resulted from settlements
during the year; deferred changes made under agreements negotiated in
earlier years; and cost-of-living provisions. Each of these components
was at or near its lowest level for this series. (See table 4.)
Combined, they resulted in an average effective wage adjustment of 3.3
percent for the 7 million workers under major contracts, the lowest
adjustment since the series began in 1968. About 1.4 million workers
received no wage adjustments; the remaining 5.6 million received
adjustments which averaged 4.1 percent.

The following tabulation shows average wage adjustments (in
percent) effective in 1985 for workers receiving one or more wage
changes and prorated for all workers:

Workers can receive wage changes from more than one source; thus
the size of the average change for workers receiving changes (4.1
percent) is larger than any of its parts.

The prorated cost-of-living adjustment averaged 0.7 percent in
1985, up slightly from the 1983 low of 0.6 percent. The size of
adjustments is determined by movement in the CPI, frequency of reviews,
and the adjustment formula used. Thus, the size of the COLA component
is affected by the decline in COLA coverage, the moderate inflation
rate, and the negotiation of less generous formulas.

About 2.8 million workers had cost-of-living reviews in 1985; 2.3
million received increases averaging 2.2 percent; approximately 400,000
had at least one review that yielded no wage change; and none had
decreases resulting from COLA's. Wage adjustments stemming from
1985 reviews offset about 58 percent of the rise in consumer prices,
compared with 50 percent in 1984.

Effective wage changes in major collective bargaining agreements
are reflected in the Bureau's Employment Cost Index (ECI), which
measures the change in the price of labor, free from the influence of
employment shifts among industries and occupations. The wage and salary
series of the ECI is limited to straight-time average hourly earnings,
including production bonuses, incentive earnings, and COLA's, and
excluding employer costs for employee benefits. The ECI wage and salary
component is conceptually similar to the effective wage adjustment
measure for union workers covered by the major collective bargaining
agreements series, but provides data on both union and nonunion workers.

The ECI wage and salary component shows that in private industry,
the cost of wages and salaries rose 4.1 percent from December 1984 to
December 1985, matching the lowest 12-month change recorded in the 9
years such data are available. Continuing the relationship that began
in 1983, wages increased less for union (3.1 percent) than for nonunion
(4.6 percent) workers during the year ended December 1985.

THERE IS LITTLE ON THE HORIZON to suggest that 1986 bargaining
results will be very different from those in 1985. For a discussion of
the outlook for bargaining in 1986, see "Collective bargaining during 1986: pressures to curb costs remain," in the January 1986
Review.

COPYRIGHT 1986 U.S. Bureau of Labor Statistics
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